Prescott Valley Office
Haiti Relief Claimed on 2009 Tax Return
Recently passed law allows cash donations for Haitian relief to be claimed as a charitable deduction on your 2009 income tax return.
To be eligible, the cash contributions must be made to domestic qualified charities that are collecting specifically for the relief of
victims in areas affected by the January 12, 2010 earthquake in Haiti. Donations must be made after January 11, 2010 and prior to
March 1, 2010. You must itemize your deductions in order to claim these charitable contributions. Cash contributions made by check,
text message or credit card are acceptable. Record keeping requires that you be able substantiate your charitable contribution
through bank records, receipts from the charity, or telephone bill. Donations made to such relief that are not claimed as a charitable
contribution on your 2009 income tax return may be claimed in 2010.
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3,237 IRS Refund Checks Unclaimed by Arizona Taxpayers
According to The Arizona Republic, The IRS has announced that 3,237 refund checks for Arizona
taxpayers were returned by the post office due to mailing address errors. You can check the list
of returned refunds by county for Arizona residents by visiting the Money section of
www.azcentral.com. If you have not received a federal income tax refund from the IRS, either
through check by mail or direct deposit, when you should have, please update your address
information with the IRS. Updating your address with the IRS can be accomplished by using either
the “Where’s My Refund?”
tool at www.IRS.gov or by calling 1-800-829-1954.
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2010 IRA to Roth Conversion Rules
Taxpayers will be able to convert funds in traditional IRAs and qualified plan funds to Roth IRAs
regardless of income level or filing status beginning in 2010. Prior to 2010, taxpayers, other than
persons married filing separately, were allowed to convert amounts in a traditional IRA, SEP IRA, or
SIMPLE IRA (subject to two year period restrictions for a SIMPLE IRA) to amounts in a Roth IRA when
modified adjusted gross income did not exceed $100,000.
In 2010, both the $100,000 modified adjusted gross income limitation and married filing separate
restrictions are removed on conversions from traditional IRAs and qualified plan funds to Roth IRAs.
Conversions from a traditional IRA to a Roth IRA are taxed as though the taxpayer received a normal
distribution without subsequent contribution of that amount to another IRA. In addition, such
conversions are not subject to the 10% premature distribution tax.
A complicating income inclusion factor exists for those taxpayers that convert traditional IRAs to
Roth IRAs beginning in 2010. Unless taxpayer elects otherwise, gross income from the conversion
is not included in income for 2010. Rather, half of that income will be includible in gross income
in 2011 with the remaining half being includible in 2012.
Roth IRAs possess several advantages over traditional IRAs for those taxpayers who may benefit
from conversion. Roth IRAs are not subject to the lifetime required minimum distribution rules
that commence in the year following that which the taxpayer reaches age 70 ½. Roth distributions
are considered tax-free when made after the 5 year tax period beginning with the initial year of
contribution to the Roth and when the taxpayer reaches age 59 ½ , on account of death, disability,
or the purchase of a home by a qualified first-time homebuyer (limited to $10,000).
It is important to note that the conversion route will not benefit all taxpayers. Generally,
the best candidates are those taxpayers who are not close to retirement, anticipate being in
a higher tax bracket in the future, and who can pay for such conversions from non-retirement
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Pension Bill Waives 2009 IRA RMDs
On December 23, 2008, President Bush signed the Worker, Retiree and Employer Recovery Act of 2008. (
H.R. 7327). This bill includes a key provision that will waive IRA, 401(k), 403(b) and some other types
of required minimum distributions (RMDs) for 2009.
Under the IRS rules, individuals over age 70½ are required to take required distributions each year
from their IRAs. For most IRA owners, the distributions are paid out under the following Uniform Table.
Payouts equal the balance the previous December 31 multiplied by a factor based upon age. More senior
persons must take a larger withdrawal.
||IRA Approximate Payout
Because the value on December 31 of 2007 was used for RMDs in 2008 and the stock markets declined in
late 2008, a number of IRA owners had to take larger distributions than would be expected in normal
years. In order to enable individuals to rebuild their IRAs and other qualified plans, Congress has
created an "RMD holiday" for 2009. During 2009, individuals may choose to not withdraw any amount even
if they are over age 70½. Of course, IRA owners over age 59½ may still voluntarily withdraw without
penalty and pay income tax on amounts from an IRA.
Several members of Congress also asked the IRS to make changes for year 2008. Because many individuals
had already taken withdrawals in 2008, the IRS declined to make any changes for year 2008. The "RMD
holiday" applies only to year 2009.
This provision will be helpful to many persons who are attempting to rebuild their IRA. Hopefully,
the markets will also recover in 2009 and IRAs will begin to grow again. While the requirement to
take a distribution in 2009 does not exist, it still will be possible for charitably-minded persons
to make direct transfers from IRAs to qualified charities in 2009.
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Quarterly Payments Prevent Annual Surprises
As a self-employed individual, you must estimate your income and self-employment taxes and pay
them quarterly. You generally must pay at least the lesser of (1) 90 percent of your current year
tax, or (2) 100 percent of your prior year tax.
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Bankruptcy is Nontaxable
Bankruptcy is not a taxable event on your return, assuming that you filed a Chapter 7 or 11
bankruptcy. If you filed Chapter 13 bankruptcy, report your income and expenses on your return.
You can exclude any discharge of debt, but you must file Form 982.
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Marriage Creates a New Paper Trail
Marriage changes numerous aspects of life, including your tax situation. As former single people,
you must now file your taxes as married filing jointly or married filing separately, whichever
works to your advantage tax wise. Check with Helfinstine & Associates for advice.
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Stock Sales Require Proper Reporting
If a friend or family member gives you a gift, the IRS doesn't need to know about it. But if you sell
someone stock, securities or other assets, you've created a taxable transaction. You must report
the sale on Schedule D.
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Home Sweet Home Tax Deductions
If you used your old home as your principal residence for two of the last five years, you won't pay
tax on the gain from its sale unless you gained more than $250,000 ($500,000 if married and filing jointly).
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Pension Protection Act Makes Many Changes For Individuals
On Aug. 17, 2006, the President signed the Pension Protection Act of 2006 into law. This complex
900-plus-page law makes a host of changes relating to pension plans and their beneficiaries, and
also revises key charitable giving rules. Its key changes affecting individuals include:
(1) Statutory rules for a relatively new type of company sponsored retirement plan generally called
a cash balance plan. This type of plan determines an employee's retirement benefit by reference to
his or her “cash balance” in a hypothetical account. Each employee's hypothetical account balance
is based on annual pay credits to his or her account, plus interest credits on the account. Cash
balance plans tend to favor younger workers over older workers. Traditional pension plans can be
converted to cash balance plans, if a number of detailed requirements are met.
(2) Generally effective for plan years beginning after 2006, “defined contribution” retirement plans
(such as profit sharing plans) invested in employer securities only must offer participants at least
three other investment choices.
(3) Generally effective for plan years beginning after 2006, an accelerated vesting schedule applies
to all employer contributions made to “defined contribution” retirement plans (currently, faster
vesting applies only to matching employer contributions).
(4) Generally effective for plans years beginning after 2007, retirement plans that provide for a
joint and survivor annuity payout option must offer as an option a joint and 75% survivor annuity benefit.
(5) Generally effective after 2006, plans will be able to offer investment advice to participants
in plans such as profit-sharing arrangements or 401(k) plans, if certain strict new standards
are met. Similarly, fiduciaries will be able to provide investment advice to owners and
beneficiaries of IRAs (as well as health savings accounts, Archer medical savings accounts,
and Coverdell education savings accounts).
(6) Post-2006 cost-of-living increases to the income limits at which the IRA deduction phases out
when an individual (or spouse) is an active participant in an employer sponsored retirement plan.
This will result in more active participants being able to make deductible IRA contributions.
(7) Post-2006 cost-of-living adjustments to the income limits at which the ability to make contributions
to a Roth IRA phases out. As a result, more taxpayers will be able to make Roth IRA contributions.
(8) For distributions after 2006, nonspouse beneficiaries of retirement plan accounts will be able
to make rollovers to inherited-IRA accounts. Currently, only spouse-beneficiaries of retirement
plan accounts can make rollovers to IRAs. The change gives much-needed flexibility to those who
inherit retirement plan accounts from a non-spouse (such as a parent or uncle).
(9) More rollover options for after-tax contributions to retirement plans. After 2006, such
contributions may be rolled over to another retirement plan or to a tax-sheltered annuity, if the
transfer is made via direct rollover and the receiving plan or annuity separately accounts for the
(10) After 2007, distributions from retirement plans, tax-sheltered annuities, and governmental
Code Sec. 457 plans can be rolled over directly into a Roth IRA, subject to the usual rules that
apply to rollovers from a traditional IRA into a Roth IRA. For example, under these rules, a rollover
to a Roth IRA generally is taxable, and, until 2010, can't be made if adjusted gross income is
$100,000 or more (but the $100,000 rule won't apply after 2009).
(11) For distributions in plan years beginning after 2006, pension plans may make distributions
once a plan participant reaches age 62, even if he or she continues working. This change will
make it easier for employees to phase into retirement (assuming their employers decide to adopt
(12) Makes permanent many pro-taxpayer retirement plan and IRA changes made by the Economic Growth
and Tax Relief Reconciliation Act of 2001 that were supposed to sunset at the end of 2010.
These include the ability to make “catchup” contributions to IRAs and 401(k)s after reaching age
50, increases in maximum IRA and Roth IRA contributions, and widened rollover choices.
(13) A new opportunity in 2006 and 2007 for an individual age 70 1/2 or older to exclude up to
$100,000 a year of distributions from IRAs (including Roth IRAs) that are paid directly by the
IRA or Roth IRA trustee to a qualifying charity. If the exclusion is chosen, the donated amount
can't be deducted as a charitable contribution.
(14) Toughened rules for certain contributions. For example, post-Aug. 17, 2006 contributions of
clothing and household items that are not in good used condition or better can't be deducted. In
addition, the IRS may deny a deduction for any contribution of clothing or a household item with
minimal monetary value, such as used socks or undergarments. A deduction may be approved for clothing
or a household item not in good used condition or better that has a more than $500 claimed value and
is backed up by a qualified appraisal.
(15) New substantiation requirements. A taxpayer won't be able to deduct a post-2006 contribution
of cash, check, or other monetary gift unless he maintains as a record of the contribution a bank
record or a written communication from the charity showing its name, the date of the contribution,
and the amount.
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Reduced Hybrid Credit Allowed For Toyota Cars After Sept. 2006
The IRS announced that only 50% of the otherwise available alternative motor vehicle credit amount
is allowed for Toyota hybrid vehicles bought after Sept. 30, 2006, and before Apr. 1, 2007 (and only
25% for Toyota hybrids bought after Mar. 31, 2007, and before Oct. 1, 2007). The phase-out of the
credit is tied to the number of hybrids sold per-manufacturer. No credit will be allowed for Toyota
hybrids bought after Sept. 30, 2007. While Toyota hybrid sales are now subject to a reduced credit,
hybrids purchased from other manufacturers, such as Honda, Ford and GM, aren't. In the past several
months, the IRS has announced that the following vehicles are eligible for the credit, in the following
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- Toyota: 2007 Prius ($3,150), Highlander Hybrid 2WD and 4WD ($2,600), Lexus RX 400h 2WD and Lexus 4WD ($2,200)
- Honda: 2006 Insight ($1,450), Civic Hybrid ($2,100), Accord Hybrid ($1,300; $650 without updated calibration),
and Accord Hybrid Navi ($1,300; $650 without updated calibration)
- GMC: 2006 and 2007 model years Silverado Hybrid 2WD,( $250), Silverado Hybrid 4WD ($650), Sierra Hybrid 2WD, ($250),
Sierra Hybrid 4WD ($650), and 2007 Saturn Vue GreenLine ($650)
- Ford: 2007, 2006, 2005 Escape 2 WD Hybrid ($2,600), Escape 4 WD Hybrid ($1,950), and 2007 and 2006 Mercury Mariner
2007 Inflation Adjustments Will Widen Tax Brackets and Expand Tax Benefit
Inflation adjustments announced by the Internal Revenue Service will widen tax brackets.
Personal exemptions and standard deductions will rise and for 2007 the income limits for IRA's will increase.
To keep pace with inflation, the dollar amounts for a variety of tax provisions must be revised,
by law. For 2007, more than three dozen tax benefits are being adjusted. These changes will
affect virtually every taxpayer.
Some of the changes taxpayers will see on their 2007 returns filed in 2008 are:
Heads of household will deduct $7850 (up $300).
- The personal and dependency exemption will be $3400, up $100 from 2006.
- For married couples filing joint the new standard deduction will be $10,700 (up $400)
- For singles and married individuals filing separately the standard deduction will be $5350 (up $200).
Rather than itemizing deductions nearly two out of three taxpayers take the standard deduction.
For each filing status the tax-bracket thresholds will increase. For example a married couple filing
joint return, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket
will be $63,700, up from $61,300 in 2006.
In 2007, for the first time, inflation adjustments will raise the income limits that apply to the
retirement savings contributions credit. This will also apply to contributions to a Roth IRA and
deductible contributions to a traditional IRA where the taxpayer or taxpayer's spouse is covered
by a retirement plan at work.
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Online Payment Agreement Application announced by the IRS
As posted on the IRS Newswire October 16, 2006
Many individuals who owe delinquent federal income taxes will now be able to apply online for a
payment agreement. The (OPA) Online Payment Agreement application is now available at www.irs.gov.
It provides an easy voluntary way to resolve tax liabilities. Taxpayers who cannot pay in full may
request a payment agreement and some people feel more comfortable working payments out online rather
than talking to a person.
OPA allows eligible taxpayers or their authorized representatives to self qualify, apply for, and
receive immediate notification of approval.
Taxpayers must have filed all required tax returns in order to use the online application. They
should also have the following information available:
- Balance due notice from the IRS.
- Social Security number or Individual Taxpayer Identification number
- Personal identification number, which can be established online using the caller
identification number from the balance due notice.
When applying online, there are three payment options.
The application can be accessed at www.irs.gov. There is a pull down menu under "I need to..."
and taxpayers select the "Set Up a Payment Plan." The application is available Monday through
Friday 6 a.m. to 12:30 a.m., eastern time and Saturday from 6 a.m. to 10 p.m. eastern time. On
Sundays the application is available from 4 p.m. until midnight also eastern time.
- Taxpayers can pay in full & if done within 10 days they can save penalties & interest.
- Taxpayers can receive a short term extension for up to 120 days. There is no fee but
additional penalties & interest do accrue.
- Taxpayers can use a monthly payment plan. Penalty & interest still accrue on the unpaid
balance & a $43 user fee is added to the amount owed.
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Don't be fooled by Scam Artists claiming to be from the IRS
IRS Newswire August 23, 2006
As the Internal Revenue Service begins its private debt collection initiative, the tax agency
reminds taxpayers there are several simple steps that can provide protection against scam artists.
The IRS is beginning its private debt collection effort where a small segment of taxpayers who owe
back taxes will be contacted by private sector debt collectors.
There are several key elements of this program that will alert taxpayers they are part of the
program & help other taxpayers from being scammed by impersonators.
Taxpayer notification. All taxpayers who will be a part of the private debt collection effort will
know they are in the program before they are contacted by a private agency.
If you haven't heard previously that your in the program, be wary of any bill collectors saying
that they work on behalf of the IRS.
IRS letter. All participants selected for the program will get a letter from the IRS, telling them
they've been selected for the private debt collection program. The name of the company will be
included in the letter.
Collection agency letter. All participants will subsequently receive a second letter, this one from
the collection agency, informing the taxpayer that they will be contacted regarding back taxes.
Money collected. When paying a collection agency on behalf of the IRS, remember that the check will
be made out to the U.S. Treasury not to an individual or firm. The collection agency will provide
the appropriate IRS coupon and mailing address for payment.
Contact the IRS. If in doubt, check www.irs.gov or call the IRS @ 1-800-829-1040
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IRS Renews E-mail Alert Following New Scams
As posted on the IRS Newswire
IR-2006-104, July 7, 2006
WASHINGTON — Following a recent increase in scam e-mails, the Internal Revenue Service reminded
taxpayers to be on the lookout for bogus e-mails claiming to be from the tax agency.
The IRS saw an increase in complaints in recent weeks about these e-mails, which are designed to
trick the recipients into disclosing personal and financial information that could be used to
steal the recipients’ identity and financial assets.
“The IRS does not send out unsolicited e-mails asking for personal information,” said IRS
Commissioner Mark W. Everson. “Don’t be taken in by these criminals.”
The IRS has seen a recent increase in these scams. Since November, 99 different scams have been
identified, with 20 of those coming in June – the most since 40 were identified in March during
the height of the filing season.
Many of these schemes originate outside the United States. To date, investigations by the Treasury
Inspector General for Tax Administration have identified sites hosting more than two dozen IRS-related
phishing scams. These scam Web sites have been located in many different countries, including Argentina,
Aruba, Australia, Austria, Canada, Chile, China, England, Germany, Indonesia, Italy, Japan, Korea,
Malaysia, Mexico, Poland, Singapore and Slovakia, as well as the United States.
The current scams claim to come from the IRS, tell recipients that they are due a federal tax refund,
and direct them to a Web site that appears to be a genuine IRS site. The bogus sites contain forms or
interactive Web pages similar to IRS forms or Web pages but which have been modified to request
detailed personal and financial information from the e-mail recipients. In addition, e-mail addresses
ending with “.edu” — involving users in the education community — currently seem to be heavily targeted.
The IRS does not send out unsolicited e-mails or ask for detailed personal information via e-mail.
Additionally, the IRS never asks people for the PIN numbers, passwords or similar secret access information
for their credit card, bank or other financial accounts.
Tricking consumers into disclosing their personal and financial information, such as secret access data
or credit card or bank account numbers, is fraudulent activity which can result in identity theft. Such
schemes perpetrated through the Internet are called “phishing” for information.
The information fraudulently obtained is then used to steal the taxpayer’s identity and financial assets.
Typically, identity thieves use someone’s personal data to empty the victim’s financial accounts,
run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or
benefits in the victim’s name and even file fraudulent tax returns.
When the IRS learns of new schemes involving use of the IRS name or logo, it issues consumer alerts
warning taxpayers about the schemes.
The IRS also has established an electronic mailbox for taxpayers to send information about suspicious
e-mails they receive which claim to come from the IRS. Taxpayers should send the information to:
More than 7,000 bogus emails have been forwarded to the IRS, with nearly 1,300 forwarded in June alone.
The IRS’s mail box allows taxpayers to send copies of possibly fraudulent e-mails involving misuse of the
IRS name and logo to the IRS for investigation. Instructions on how to properly submit one of these
communications to the IRS may be found on this Web site. Enter the term "phishing" in the search box in
the upper right hand corner. Then open the article titled “How to Protect Yourself from Suspicious E-Mails”
and scroll through it until you find the instructions. Following these instructions helps ensure that the
bogus e-mails relayed by taxpayers retain critical elements found in the original e-mail. The IRS can use
the information, URLs and links in the bogus e-mails to trace the hosting Web sites and alert authorities
to help shut down these fraudulent sites.
However, due to the volume the mailbox receives, the IRS cannot acknowledge receipt or reply to taxpayers
who submit their bogus e-mails. The firstname.lastname@example.org mailbox is only for suspicious e-mails and not for
general taxpayer contact or inquiries.
For information on preventing or handling the aftermath of identity theft, visit the Federal Trade
Commission’s consumer (http://www.consumer.gov/idtheft/index.html) and OnGuardOnLine
(http://onguardonline.gov/index.html) Web sites. Click on "Topics" to find the identity theft and
phishing areas on OnGuardOnLine.
For information on identity theft prevention and victim assistance in relation to tax administration,
visit the IRS Identity Theft Web page on the www.irs.gov Web site. Enter the term "identity theft" in
the search box in the upper right hand corner.
For schemes other than phishing, please report the fraudulent misuse of the IRS name, logo, forms or
other IRS property by calling the Treasury Inspector General for Tax Administration’s toll-free hotline
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